Open Source ERP for E-Business

In this post a research on open source enterprise resource planning systems is published which has been conducted in spring 2007. Information and results may be outdated but I hope that reading this will give you food for thought.

Abstract

Open source software (OSS) is attributed with many advantages, prominently lower costs due to lacking license fees, increased flexibility due to free availability of source code and last but not least the missing lock-in with a certain software vendor. These general advantages are valuable for small and mid-sized enterprises (SME) since these companies have limited financial resources for either purchasing and customizing commercial software packages or developing software on their own. As the OSS paradigm is not only limited to operating and office applications, but also emerges in the area of enterprise resource planning systems (ERP), they have a growing relevance to business processes and the interorganizational integration of these processes. When the latter is conceived as electronic business the open nature of OSS also improves the networkability of SME, a key competitive factor for companies that are required to closely collaborate with value chain partners. In view of these developments, this paper presents a first step towards systematically analyzing the contribution of OS-ERP systems for SME. For this purpose a web content survey was conducted which led to the selection of ten systems. It reveals that not all systems meet the OS paradigm, that primarily basic operational ERP functionalities are covered and that technological support for electronic business integration needs to be enhanced.

Introduction

Open source (OS) software (OSS) exists in many domains indicating an increasing maturity and acceptance of this emerging technology. Among the most prominent OSS examples are the Linux operating system, the Apache web server and the GNU C compiler. While most open source products are part of the system software category, the domain of application software is being permeated as proven by OpenOffice, the Mozilla Firefox browser or the groupware Evolution as well. However, these applications still have an infrastructure focus and do not include any specific business logic. As described by Kalakota and Robinson (1999) this is the domain of electronic business applications such as supply chain management (SCM), customer relationship management (CRM) and, of course, enterprise resource planning (ERP). Proprietary packaged software systems are available in the market from commercial vendors such as SAP, Oracle and Microsoft. These so-called commercial-off-the-shelf systems (COTS) typically require significant resources for obtaining licences, customizing the systems to a company’s requirements, maintaining the system with upcoming releases, running the system and the like.
OSS is different in nature regarding several characteristics (e.g. Bruegge et al., 2004). First, program modules are reusable and source code of entire programs or parts of them are freely available. For example, this has positive impact on security since OS code cannot hide backdoors and security audits are possible. This is one of the arguments used by governments to justify their use of OSS (Simon, 2005). Second, users are actively participating in self-organizing developer communities where pieces of software are created, enhanced and made public. This is believed to increase stability and reliability of a software since bugs are reported and fixed in a short time. At the same time, OSS users are independent of the development and release policy of a software vendor. The source code can be modified if needed and if the vendor disappears from the market its software can be maintained further by other developers and users. Third, OSS development relies on standardized interfaces which are at least accepted within the developer community. These open standards contribute to the flexibility and adaptability of a software system and support the integration of applications within as well as between enterprises.
This paper argues that the qualities of emerging OSS technologies are especially valuable for small and medium-sized enterprises (SME). Improving the competitiveness of this sector is vital for an economy. According to the SME Observatory Report of 2003 (European Commission, 2003) 99.8% of enterprises in the Europe-19 (15 member states of the EU in 2003 and Norway, Liechtenstein, Iceland, Switzerland) member states are SME. These companies need to meet global competition and implementing technologies for enhancing process automation is critical for competitive advantage (new products and processes) and competitive necessity (demands of large value chain partners). However, SME are limited in terms of the available financial resources and the possible degree of vertical integration. Consequently, value chain collaboration is inherent in the nature of SME. Beck et al. (2002) concluded that both ERP systems and support for data exchange standards are key factors for successful integration of SME. This integration and the enabling of electronic transactions with external systems is described by the concept of electronic commerce (e-commerce). The notion of electronic business (e-business) additionally considers the integration of internal systems and enabling of electronic transactions within a firm (Smolander, 2003).
Strong adoption of OSS by SME is not only due to cost advantages – an important aspect for SME (Roberts, 2005) – but also to the advantages in flexibility. According to Chen (2006) OS systems feature a better fit when highly differentiated requirements need to be met, a large amount of customization is necessary and commercial options are expensive. COTS provides a better fit when only standard requirements have to be fulfilled, little customization is needed and commercial options are inexpensive. In reality, distinguishing between OS systems and COTS requires a closer analysis since the proverb ‘open’ is not coherently used by many software providers. A first systematic analysis on OS-ERP in the SME context was conducted by (Kim and Boldyreff, 2005) and concluded that OS-ERP have “…not revolutionised the business environments of SMEs yet”.
This paper aims at a more recent overview on OS-ERP and presents first systematic insights into their e-business integration features. It first describes how the OS-ERP systems have been selected and analyzes whether these meet the criteria which are constitutional for ERP and OSS. In the following chapter key elements of e-business technologies are described and used to identify the contribution of OS-ERP systems for interorganizational integration. The final section concludes this research and suggests directions for future research.

Selection of OS-ERP Systems

Selection Approach

As mentioned above, research in the OS-ERP domain is still in an early stage. Web content analysis has been chosen to add more structure to this field and to obtain first insights in the main capabilities of existing systems. While case studies are suitable for understanding a certain setting in-depth, a broad and structured web research is suitable for the purpose of this paper. The need for structure is already presented in a web research on OS-ERP which yields a vast and heterogeneous amount of results. To add more focus the search was limited to sourceforge.net which is one of the largest communities hosting OSS projects. A search for the term ‘ERP’ still resulted in over 270 projects. To reduce this number, projects were excluded that did not represent ERP systems at all, e.g. add-ons for existing projects, translations, and abbreviations with other meaning than enterprise resource planning. Projects that were categorized as in planning, alpha or beta phase, which did not offer an English language version, a dedicated homepage and/or further system documentation as well as projects which represented less successful forks of existing projects, were also excluded. In addition to Sourceforge, a literature analysis was conducted involving major business magazines (e.g. CIO Magazine, CRN, eWeek) and former work by Herzog (2006).
As result ten systems were selected (see Table 1). All of the systems claim to be ERP systems and market themselves as open source. They are individual projects with the exception of ADempiere, which is a recent (September 2006) fork of Compiere and Opentaps which is built on top of OfBiz. Each of the pairs is expected to have similar functionalities.

Table 1: OS-ERP selected

The ERP Criterion

Many definitions exist for the term ‘ERP’. Common to them is that an ERP system is a multi-module integrated application system which covers core business functional areas and has a common database (O’Brien and Marakas, 2006). In a narrower sense ERP systems need to support all processes along a company’s value chain, e.g. purchasing, warehousing (inventory), production (manufacturing) and sales (Lassmann, 2006). Offering electronic support in these areas is constitutional for an ERP system. In a wider sense, ERP systems may also include additional modules for research & development (R&D), CRM, human resources (HR) and accounting which we also considered in our comparison.

Table 2: OS-ERP and ERP criterion

As summarized in Table 2, almost all selected OS-ERP systems matched the ERP definition introduced above. SQL Ledger and WebERP did not support production/manufacturing and therefore will be omitted when comparing against the OS criterion. Interestingly, the majority of systems show CRM and accounting functionality. A backlog lies in the areas of R&D and HR. A possible explanation is that these areas are less critical for SME as individual solutions might be required for their focused product development and the number of staff is limited by definition.

The Open Source Criterion

As with ‘ERP’, the term ‘open source’ is broadly used and often reduced to a marketing phrase without complying to established definitions of the term. This research applies the definition of the Open Source Initiative (OSI), “…a non-profit corporation dedicated to managing and promoting the Open Source Definition for the good of the community, specifically through the OSI Certified Open Source Software certification mark and program” (OSI, 2006). According to the Open Source Definition of OSI (2006), a software license must comply with seven criteria: free redistribution, free availability and distribution of source code, derived works (modifications allowed) under the same license, integrity of the author’s source code, no discrimination against persons or groups or against fields of endeavour, distribution of license, license must not be specific to a product, must not restrict other software and must be technology-neutral. Well-known OSI-approved licenses are GPL, LGPL, BSD and MIT license. For the remaining OS-ERP systems both license type and OSI approval were determined.

Table 3: OS-ERP and OS criterion

As shown in Table 3, many systems are OSI approved. Two systems, Openbravo and Opentaps, have licenses which are based on OSI-approved licenses. The difference between Openbravo Public License and MPL lies in a branding clause to make sure that the Openbravo logo and link to their homepage is maintained when the source code is redistributed (Openbravo, 2007). The Honest Public License of Opentaps carries additional clarification for hosting and software as a service (Opentaps, 2007). Although not directly approved by OSI the nature is very similar and justifies the OS label. The only system to be dismissed was OpenMFG since its source code is provided for free only after paying annual license fees. To summarize, seven so-called OS-ERP systems comply with the OS principles and will be subject to further analysis regarding their interorganizational connectivity in the following chapter.

Integrating OS-ERP Systems and E-Business

Technological Features for E-Business

According to Kalakota and Robinson (1999) ERP systems are the backbone for e-business. For example, they provide internal end-to-end-functionality (e.g. from sales to purchasing) and centralized definitions of master data, two key requirements when processes are to be integrated with external partners. Although the definition of processes and data is industry- and company-specific, some technological features influence the effort of establishing technological links with external systems. For this purpose, six features have been selected from existing literature:

A three-tier architecture with database, application and presentation layer enhances scalability so a firm can adapt more easily to business growth. It allows more users to access all relevant information and thus enables users to make more accurate and timely decisions which can also reduce costs and streamline profits (Siau and Messersmith, 2002).
A web-based presentation layer has advantages compared to rich client interfaces, especially in regard to e-business integration. Griffin and Scherrer (2004) mention better access through any web-enabled device and the reduction of maintenance costs. Additionally, Siau and Messersmith (2002) refer to easier integration of customers and suppliers with portal concepts.
A service-oriented application layer (SOA) is key to future application integration architectures (Cardoso et al. 2004). Application functionality is not only modularized as in many existing ERP systems but is provided in form of (Web) services which communicates via standardized protocols, such as XML, SOAP and UDDI. The goal and topic of ongoing research is a flexible composition of business processes (Baskerville et al., 2005).
A support of XML interfaces to other systems as these support the connectivity of application systems via a standardized syntax for data description. Exchanged documents or messages can be automatically checked for well-formedness and validity (Griffin and Scherrer, 2004). Dias et al. (2002) emphasize the importance of XML and XML-based standards support for e-commerce and interoperability.Yen et al. (2002) point out that XML standards ultimately make proprietary interfaces obsolete.
A support for common data exchange standards such as EDIFACT and ebXML which provide essential and accepted syntax for interorganizational integration (e.g. (Beck et al. 2002) and (Griffin and Scherrer 2004)). As mentioned by Wüstner et al. (2006) they “…provide partners with business process data in an inexpensive, reliable and fast manner”.
Finally, business intelligence features are important in managing the growing data volume involved in planning, transacting and controlling business processes. Therefore, Yen et al. (2002) regard business intelligence as important factor for improving e-business integration and reaction time.

Evaluation of OS-ERP Systems

A comparison of the seven OS-ERP systems regarding the e-business features reveals that more or less each system has some basic integration capabilities (Table 4). Almost all systems can be accessed via a web-based interface and are based on a three-tier architecture. All systems support the exchange of XML messages in some form and most are based on the SOA concept. Data exchange via EDI is the dominant technological form of external integration, although business standards such as EDIFACT are not always explicitly mentioned. Little support was observed regarding business intelligence features, which might be explained with the system’s focus on supporting operational or transactional processes and that SME generally have less departments which require extensive reporting functionalities. Both ADempiere and Compiere provide functions to export multi-dimensional data which can be analyzed with external tools. Openbravo goes a step further and provides a simple business intelligence module of its own.

Table 4: OS-ERP and e-business integration features

Conclusions and Further Research

OS-ERP systems are an emerging technological concept that promises to sustain diffusion of ERP systems among SME. From an interorganizational (or e-business) perspective this equals an increased potential for seamless process integration in business networks. As many of these OS-ERP systems are less than five years of age, this research brings initial structured results to a domain which is also associated with great ‘buzz’. In a first step the large number of existing OSS was reduced to ten systems which have been analyzed whether they meet the requirements of OS and ERP systems. In fact, some OS-ERP explicitly comply with the licensing principles put forward by OSI, while other pursue an individual licensing model which is based on the OSI license and differs slightly without violating the OS idea. One system, OpenMFG was not compliant with OSI. Thus, researchers need to verify that OS-ERP systems are true OS when doing research in this area. Regarding the ERP criterion most of the systems were ‘true’ ERP systems. However, the necessary functionality of an ERP system also depends on the application setting, i.e. if the suitability of OS-ERP systems in wholesale distribution is examined a manufacturing module would not be required.

To draw conclusions on the systems’ ability for e-business integration six technological features that enable and improve integration were identified. The analysis revealed that many systems use SOA principles which ideally support the combination of various software modules independent of specific software suites (e.g. SAP Enterprise). Shortcomings were identified in the area of data exchange standards and business intelligence. Most systems implement EDI but support of “modern” standards such as ebXML is lacking or rudimentary. Business intelligence functionality is limited in many systems, but for SMEs this part might be less essential than for large enterprises. In summary, OS-ERP systems promise to become viable alternatives to proprietary COTS systems in the SME sector, a conclusion that also supports the findings of Quack (2006) and Santosus (2006). In fact, almost all evaluated systems explicitly target this segment.

Future research is needed to draw more rigorous conclusions. First, this research has evaluated several OS ERP systems in a qualitative approach only. One step to gain deeper insight into their functionality, reference business processes could be implemented in various systems to see how they perform and whether this process can be executed at all. Second, the ERP selection processes could be examined. When pursuing an open source strategy a company needs to determine the fit between its own requirements and the system’s functionality. Possible selection processes are described by Bernroider and Koch (2001), Skok and Legge (2002) and Wei et al. (2005). It would be interesting to adapt these processes to the special characteristics of open source business models. Finally, research is needed in the economics of OS-ERP systems. Although theses systems are freely available and may be tailored due to standardized interfaces, licensing and customization are only single parts of the entire ERP lifecycle. For example, operational aspects such as release capabilities, stability and maintenance need to be considered as well to determine whether these effects eventually offset the advantages of OS-ERP in the early lifecycle phases.

References

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Bruegge, B., Harhoff, D., Picot, A., Creighton, O., Fiedler, M., Henkel, J. (2004): Open-Source-Software – Eine ökonomische und technische Analyse, Springer, Heidelberg.
Cardoso, J., Bostrom, R.P., Sheth, A. (2004): Workflow Management Systems and ERP Systems: Differences, Commonalities, and Applications, Information Technology and Management 5 (2004), pp. 319-338.
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Tags: adempiere, compiere, erp5, ofbiz, openbravo, openmfg, opentaps, sql-ledger, tinyerp, weberp

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